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Wednesday, October 14, 2009

What is McCarran-Ferguson

This bill will likely get all sorts of media attention in the next week and month. That's because Democrats are now thinking about repealing it.

The exemption, known as McCarran-Ferguson, cedes regulatory control of the industry, on the business side, to individual states. Since health insurers are already heavily regulated at the state level, its repeal would have a much broader impact on property and casualty insurers — a group that has also found itself in Congress’s cross-hairs recently.

Schumer isn’t the first member of his party to push for this repeal. Chairmen of the Senate and House Judiciary committees both introduced legislation already this year to eliminate the exemption or gut it substantially.

McCarran/Ferguson is something I have referenced from time to time but never mentioned by name before and that's my oversight. Whenever I have mentioned that health insurance providers enjoy "regional monopolies" that comes about in part because of this law.

The McCarran-Ferguson Act, 15 U.S.C. § 1011, is a United States federal law that allows state law to regulate the business of insurance without federal government interference. The McCarran-Ferguson Act was passed by Congress in 1945 after the Supreme Court ruled in United States v. South-Eastern Underwriters Association that insurance could be regulated by the federal government via the Commerce Clause (the overturned case stated that the federal government had this power), or, in other words, that insurance was interstate commerce.

The act did a few things: 1)it left regulation of insurance to the states and 2)it exempted insurance from anti trust in most cases. As a result, states regulate health insurance within their borders AND in most states one insurance company dominates.

I have often referenced this act as one of the problems in health care and health insurance specifically. In fact, its repeal was one of my pillars for health care reform. Now, the cynical view, the view that Politico (in the article linked) implies, is that the repeal of McCarran/Ferguson is only being discussed because of the report that was put out by AHIP written by Price Waterhouse Coopers earlier in the week. That report said that the Baucus plan would actually add even more to health insurance premiums. I don't know if this is true and I don't care.

Everyone agrees that health insurance premiums are rising out of control. It's also true that health insurance is unique in three ways 1)health insurance companies can be monopolistic 2)it can't be sold across state lines and 3)it's bought through the employer mostly. Simple logic says that maybe the problem are the three things that make it unique.

Now, both Republicans and Democrats have paid lip service to choice and competition. So, I have a suggestion for bi partisan health insurance reform. How about if Republicans and Democrats come together and pass health insurance reform that 1) repeals McCarran/Ferguson and 2) allows insurance to be sold across state lines. That would increase choice and competition and its price tag is a big fat zero.

It's important to note that repealing McCarran/Ferguson isn't without unintended consequences. By repealing McCarran/Ferguson what it really does is allow the federal government to regulate insurance along with state governments. You can see the potential regulatory nightmare of that scenario. So, in order for such a compromise to work it must be implemented to create competition and not merely to punish the insurance companies. One way is to allow the federal government to regulate anti trust and give the states the power to regulate all other aspects of insurance. Either way, a debate on McCarran/Ferguson could lead to real and bipartisan reform that benefits society if both parties are really trying to fix the system.

2 comments:

Anonymous
said...

I'm a Casualty Actuary whose work is affected by McCarren Ferguson. That law allowed insurance companies to merge their statistics in order to figure out what rates to charge, although they are still prohibited from agreeing to charge the same rates. This aggregation of industry statistics is important for many lines of insurance.

I'm a collision repair professional whose work is also affected by McCarran-Ferguson. This law is used by the insurance companies to DIRECTLY supress my labor rate to $46/hr. Compare this to the $80-95/hr for automotive mechanical repair in the same market. Mechanical shops are free to set their own labor rate. The equipment and training investment for collision shops is equal to or greater than that of mechanical repair facilities. Insurance companies also use McCarran-Ferguson's anti-trust exemption to weild their considerable infuence over my industry in order to try to dictate repair procedures. I could go on and on. McCarran-Ferguson is deeply and inherently flawed. IT NEEDS TO BE REPEALED. The health insurance industry says repealing McCarran-Ferguson won't matter to them. In that case they shouldn't object. If they do object to losing McCarran-Ferguson's anti-trust exemption then it begs the quesion WHAT DO THEY HAVE TO LOSE? If insurers respond by asserting how the loss of McCarran-Ferguson will hurt the consumer then you can be certain they are full of bullpucky. The abuses that have come to light during this national public debate speak volumes about the priorities of the healthcare industry. Just read the stories. People are not the priority. For far too long the insurance industry has been over the line. Their job is too indemnify their policyholders. Instead, thanks in great part to McCarran-Ferguson the have become the overlords of every industry whose services are paid through the claims process. The entire industry needs to regulated by the federal government to ensure that their activities do not violate anti-trust laws.